Bulletin – June Quarter 2017
Banking Fees in Australia

Abstract

The Reserve Bank has conducted an annual survey on bank fees since 1997. The most recent
survey suggests that banks' aggregate fee income increased at a relatively slow pace
in 2016. Deposit and loan fee income continued to decline relative to the value of
products on which these fees are levied. Greater use of electronic payment methods
continued to support moderate growth in credit card and merchant service fee income.

Overview

The Reserve Bank's annual bank fee survey provides information on the fees earned by
banks through their Australian operations.[1]
The focus of the survey is on fee income generated through the provision of loans, deposit
services and payment services. The 2016 survey included 16 institutions, capturing 90 per
cent of the Australian banking sector by balance sheet size.[2] Fees earned from
operations outside of Australia and other fee income obtained through funds management and
insurance operations are excluded from this survey. This article summarises the results from
the latest survey, covering banks' financial years ending in 2016.[3]

In 2016, domestic banking fee income from households and businesses grew at a relatively
slow pace of 1.7 per cent, to around $12.7 billion (Table 1; Graph 1). Deposit and loan fee
income relative to the outstanding value of products on which these fees are levied was
slightly lower than in the previous year.

Table 1: Banks' Fee Income

Households

Businesses

Total

Level $ million

Growth Per cent

Level $ million

Growth Per cent

Level $ million

Growth Per cent

2013

4,127

1.6

7,595

3.1

11,711

2.5

2014

4,169

1.0

7,862

3.5

12,031

2.7

2015

4,341

4.1

8,140

3.5

12,481

3.7

2016

4,408

1.5

8,291

1.9

12,699

1.7

Source: RBA

Graph 1

Households

Banks' fee income from households grew by 1.5 per cent in 2016. This represented a
slowing in growth from the previous year, reflecting lower growth in fee income from housing
lending and credit cards (Graph 2; Table 2). Growth in fee income from personal lending
reflected the inclusion of a loan portfolio previously not reported in the survey; excluding
these new assets, fee income from this segment declined.

Graph 2

Table 2: Banks' Fee Income from Households

2014

2015

2016

Annual growth 2016

Average annual growth 2010–15

$ million

$ million

$ million

Per cent

Per cent

Loans:

2,967

3,139

3,203

2.1

1.1

– Housing

1,182

1,234

1,239

0.4

−2.2

– Personal

366

391

415

6.1

2.5

– Credit cards

1,419

1,513

1,562

3.2

4.0

Deposits

1,122

1,109

1,104

−0.5

1.1

Other fees(a)

80

93

89

−4.9

−0.2

Total

4,169

4,341

4,408

1.5

0.1

(a) Includes banking-related fee income from households that cannot be
directly related to an individual deposit or loan account (e.g. travellers'
cheques or foreign exchange fees)

Source: RBA

Growth in fee income from credit cards slowed in 2016 to slightly below the average since
2010, but remains the largest component of fee income from households. The growth in fees
was supported by continued take-up of credit cards bundled with home loan packages. There
were also more instances of fees being charged, with some banks no longer waiving fees for
transferring a credit card balance to a new card provider. Higher unit fees also contributed
to growth, with some banks increasing annual fees on rewards cards (Table 3).

Table 3: Unit Fees on Credit Cards(a)

2014

2015

2016

Annual growth 2016 Per cent

Annual fees ($)

Non-rewards cards

51

53

53

0.0

Rewards cards

186

185

191

3.3

All cards

134

133

137

3.3

Other fees

Foreign currency conversion fees(per cent of value)

2.9

2.9

2.8

−1.0

Late payment fee ($)

19

17

18

2.3

(a) Simple average fees for cards issued by a sample of seven banks; only
cards that are available to new cardholders are included in the sample; note
that changes in the sample affect the average fee; as at June of each year

Sources: Credit card issuers' websites; RBA

Income from exception fees charged to households on credit card products continued to
decline in 2016 (Graph 3). Despite some increases in unit fees for late payments (Table 3),
the decline in exception fee income occurred because customers exceeded their credit limits
or made late repayments less often. This trend was broad based across banks.

Graph 3

Fee income from housing loans increased only slightly, consistent with slower growth in loan
approvals over the year. Banks continued to report that waivers or reductions in
establishment fees were being offered. This more than offset a modest increase in exception
fees, particularly those relating to the early termination of a fixed interest-rate period
and dishonour fees.

Fee income from deposits declined slightly over 2016, following similarly small declines in
recent years. The decline in deposit fee income in 2016 was broad based across most types of
fees on deposit accounts, consistent with continued competition between banks for households'
deposits. Banks reported that the decline in fee income was due to more fee waivers, reduced
ATM charges owing to customers' increased use of contactless payments technology and
EFTPOS cash-out options, and reduced balance enquiries arising from increased use of mobile
banking applications. Banks reported that customers are continuing to shift away from
traditional savings products, such as stand-alone accounts, to online savings products
linked to transaction accounts which attract fewer fees. However, this was partially offset
by an increase in income from more frequent occurrences of exception fees on transaction
accounts, particularly dishonour fees.

Businesses

Total fee income from businesses increased by 1.9 per cent in 2016, around the slowest pace
for a decade (Graph 4; Table 4). Slower growth was recorded for fee income from both small
and large businesses. By product, growth in fee income was driven by increases in business
loan fees and merchant service fee income from processing card transactions. Fee income from
deposit accounts also increased slightly, while fee income from bank bills and other sources
declined (Graph 5).

Graph 4

Graph 5

Table 4: Banks' Fee Income from Businesses

2014

2015

2016

Annual growth 2016

Average annual growth 2010–15

$ million

$ million

$ million

Per cent

Per cent

Deposit accounts

589

587

595

1.3

−1.9

– of which: exception fees(a)

41

41

60

na

−7.4

Loans

3,362

3,433

3,552

3.5

4.8

– of which: exception fees(a)

42

42

53

na

−4.1

Merchant service fees

2,427

2,651

2,739

3.3

7.6

Bank bills

204

190

179

−5.6

0.7

Other(b)

1,280

1,279

1,226

−4.1

2.4

Total

7,862

8,140

8,291

1.9

4.5

– of which: exception fees(a)

83

83

113

na

−5.8

(a) Exception fees in 2016 are impacted by a reporting methodology
change
(b) Includes banking-related fee income from businesses that cannot be
directly related to a deposit or loan account, merchant or bank bill
facility (e.g. guarantees or foreign exchange fees)

Source: RBA

The increase in business loan fees mainly reflected higher reported fee income from small
businesses. However, changes to banks' reporting methodology accounted for around half
of this increase; abstracting from these changes, small business fee income growth was
modest. Fee income from loans to large businesses decreased slightly overall, driven by the
major banks, who reported that this reflected competitive pressures and reduced new lending
activity.

Growth in merchant service fee income was mainly attributable to increased transaction
volumes, particularly for credit cards due to wider acceptance of contactless payments.
Increased use of platinum and business credit cards, which attract higher interchange fees,
also contributed to growth in merchant service fee income from small businesses.
Nevertheless, growth in merchant service fee income was evenly spread across small and large
businesses. The ratio of merchant service fee income to credit and debit card transactions
was stable during 2016 after declining for much of the past decade (Graph 6).

Graph 6

Bank bill fee income declined over 2016, partly offsetting the growth in merchant service
fee and loan fee income. This reflected a broad shift away from the use of bank bills amid
encouragement from banks for customers to use alternative products.

Fee income from business deposits increased slightly, with most of the growth resulting from
increased collection of account servicing fees from large businesses. Growth in deposit fee
income from small businesses, which accounts for the majority of business deposit fee
income, remained subdued. This was due mainly to lower deposit transaction volumes, although
some banks also reported reduced unit fees.

Business loan and deposit exception fees increased during 2016, but this was driven by
changes in reporting methodologies. Abstracting from this factor, exception fees were little
changed.

Conclusion

Over the past five years, growth in banks' aggregate fee income has been relatively low
and stable. Fee income from businesses has grown at a modest pace over this period, while
fee income from households has been little changed. By product, this trend primarily
reflects relatively flat aggregate deposit fee income and slow growth in aggregate loan fee
income. This has offset faster growth in credit card and merchant service fee income, driven
by increased transaction volumes as use of electronic payment methods has expanded.

Footnotes

The data from the survey are published in the Reserve Bank's statistical
table, ‘C9 Domestic Banking Fee Income’, and are subject to revision on
the advice of the participating banks.
[1]

Survey results have been affected by mergers and acquisitions among participating
institutions and some changes in participants' methodology (where possible, this
has been reflected in revisions to data reported in previous years).
[2]

Apart from Table 3, all data from the survey are based on individual banks'
financial years, which differ across banks.
[3]